March GBI at 50.9 – Growth Returns to Durable Goods Manufacturing

With a reading of 50.9, the Gardner Business Index shows that durable goods manufacturing grew in March 2013 for the first time since June 2012. The short, eight-month contraction was most likely due to nervousness about the election and the fiscal cliff. As those issues have moved to the back burner the trend in durable goods manufacturing has been positive. All plant sizes, except those plants with 1-19 employees, grew in March. While small facilities are still contracting, they are contracting at a much slower rate. Four of the nine regions grew in March, which was one fewer than in February. Regions that are growing include New England, Pacific, South Atlantic, and West North Central. The East South Central, after clearly lagging in February, has improved notably in March.

Both new orders and production grew for the third month in a row. In all three months, new orders grew faster than production. The growth in new orders is likely the most significant reason why future business expectations reached their highest level since May 2012. However, the growth in new orders, even above the rate of growth in production, has not resulted in a growth in backlogs. While the rate of contraction in backlogs has slowed, the lack of growth is probably due to excess capacity not being used yet. With orders growing and expectations improving, employment has grown faster each of the last three months. Exports continue to contract as the dollar remains relatively strong, especially against the yen and euro. Supplier deliveries lengthened the most since September 2012, which indicates strong improvement throughout the manufacturing supply chain. Material prices continue to increase at a substantial rate. At the same time, prices received by durable goods manufacturers have increased at a slower rate the last three months. This is putting pressure on profits.

Capital spending plans remain strong. While the average spending per plant for the next 12 months fell below levels seen the last three months, the real dollar average in March was still 8% above the historical average.